Prepayment of Property Taxes in 2017

December 29, 2017

The Internal Revenue Service offered a very timely warning to tax professionals and taxpayers who are scrambling to prepay property taxes in 2017: To be deductible, the taxes must not only have been paid by the taxpayer, they must also have been properly assessed by the local jurisdiction.

Noting that it has received a number of questions for tax professionals, the IRS issued IR-2017-2010 late on Wednesday to clarify some of the issues surrounding the state and local property tax deduction.

The recently passed Tax Cuts and Jobs Act will reduce the amount of state and local taxes that can be deducted to just $10,000, and specifically disallows prepaying state and local income taxes. It leaves open the possibility of prepaying property taxes, which has led many to scramble to make payments in 2017 in hopes of claiming them on their next tax return.

The IRS Advisory pointed out an important hurdle for them, however: “A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017,” it warned. “State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.”